Death Of The ‘Big Shop’ Is Killing Supermarkets

Changing shopping patterns could mean a slow death for supermarkets such as Tesco plc (LON: TSCO) and J Sainsbury plc (LON: SBRY).

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As a child, I hated Saturday mornings, as my parents hauled me away from Tiswas to do the big weekly supermarket shop. Kids today have it easy, because half of Britons no longer do a ‘Big Shop’ for the weekly groceries, buying products as and when they need them instead. That’s great news for boys and girls, but it’s yet more bad news for Tesco (LSE: TSCO) and J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US).

The concept of the weekly grocery shop is a dying trend, according to new research from VoucherCodesPro.co.uk. More than three-quarters say we used to do it, now it is less than half. It’s no coincidence that supermarkets have suffered a decline at the same time.

Tesco To Go

Drawing up a lengthy shopping list and spending the best part of an hour mooching around the supermarket aisles does seem a slightly old-fashioned thing to do. It takes forward planning and effort, and more and more of us aren’t up for that. It seems quicker and easier to pop into your local Tesco Express, Sainsbury’s Local or any other handy convenience store, to pick up a pint of milk, bottle of plonk and authentic wood-fired pizza. To a degree, Tesco and Sainsbury’s do benefit from this, as they roll out their branded corner shops across the country. But too much of the money leaks elsewhere.

Those consumers who continue to plan their big weekly shop are likely to be more money conscience, and head for those two market-share grabbers Aldi and Lidl. Or they key in their online shopping list on a website such as Mysupermarket.co.uk, to see where their shopping basket is cheapest today. There is no loyalty any more. But this isn’t the only reason Tesco and Sainsbury’s are finding the going so hard. 

Big Shop Dropped

Tesco has completely lost its sense of direction. Its disastrous plans for world domination sapped its confidence, and distracted it from the all-important home front. It lost the electronic products war to Amazon and is now banking on cosy artisan coffee shops to win back its disillusioned customers. Recent price cuts don’t seem to have done the job, shoppers say Tesco still looks expensive. I think they’re being harsh, but perceptions are hard to change.

Wednesday’s reported 3.8% drop in like-for-like sales is the worst in 40 years, upping the pressure on chief executive Philip Clarke. He said the sector is going through “intense transformation”. He’s right, and Tesco is on the receiving end of it.

Sainsbury’s retains the ability to spring positive surprises. Its full-year results showed a 0.2% increase in same-store sales for the year. That is a decent performance, with the market growing at its slowest rate in nearly 10 years. I was glad to see management hike the dividend 3.6% to 17.3p. It has also shown the good sense to sidestep the self-defeating price war, at least so far. Sainsbury’s remains the best bet in a troubled sector, despite chief executive Justin King’s departure.

You can’t complain about these prices: Tesco is trading at just 9.3 times earnings, Sainsbury’s is at 10.2 times earnings. Their yields are thick and juicy, at 4.96% and 5.18% respectively. Yet both have been a poor long-term investment. Over five years, the Tesco share price is down 17%. Sainsbury’s is up, just, at 3.66%. Will the next five years be better? I have my doubts. For the major supermarkets, the big shop could be over.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey doesn't own shares in any company mentioned in this article. The Motley Fool owns shares in Tesco.

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